By Phil LevyPhil Levy teaches international economics at Columbia University's School of International and Public Affairs.

June 10, 2011 - 2:40 pm

There is a strong temptation to take European stability for granted. After an exceedingly shaky start to the 20th Century, Europe got its act together, overcame animosities, and became a steady and supportive ally of the United States.

Perhaps for this reason, when foreign policy cognoscenti run down threats on the global horizon — or at least issues that are likely to feature prominently between now and the next U.S. presidential election — there is a temptation to cite China, Israel and Palestine, Afghanistan, Iran, Venezuela, and perhaps pending trade agreements with partners in Latin America and across the Pacific. I have heard discussions in which Europe was omitted entirely.

Beyond Europe’s history of stability, this may also have to do with the language used to describe Europe’s brewing financial crisis. The articles dwell on yield spreads, credit default swaps, and risks to central bank balance sheets. The issue just begs to be relegated to the back business pages. But it would be misplaced.

The serious economic implications alone should earn the story a front-page spot above the fold (for you kids out there, that’s the equivalent of a prominent link with a large font). At least the economic issues have received some careful scrutiny (see here and here). What if you’re an old-school, throw-weight and Congress of Vienna foreign policy type? Herewith, four first-order foreign policy implications:

1. Relations between European countries could dramatically worsen. The tensions that union was meant to bury are apparently not as deep as one might have thought. A year ago, when the first Greek bailout was under discussion, some German parliamentarians suggested that the profligate Greeks should just sell off some islands. "We give you cash, you give us Corfu," one paper offered. Greeks responded with recollections of Nazi plunder and atrocities. Meanwhile, countries like Spain, with strikingly high unemployment, are being told to launch austerity programs, under the tutelage of the Germans and the French. Any potential for resentment there?

2. Broken promises and unbearable burdens can spur resurgent nationalism. When Germans gave up their beloved Deutsche Mark, they were assured that the strength of the Euro would be paramount and bailouts would be verboten. Now Europe’s leaders have clarified that there would be no bailouts, except in case of emergency (but presumably still ruling out non-emergency bailouts, should that issue ever arise). The more prosperous nations of Europe are racking up significant liabilities through their handling of the crisis, often in opaque ways. This has already led to the rise of parties like the True Finns. It is not hard to imagine less-benign movements who point to the threat of inflation and painful budget cuts and claim that their leaders have betrayed their nation to serve foreign interests. There is some precedent (see Weimar Germany). And how long will comity hold among political parties in the troubled countries at Europe’s periphery (Ireland, Portugal, Spain)? As austerity bites and unemployment rises, we can only hope that the policy objections come from politicians channeling the critiques of non-European economists, as opposed to demagogues peddling more pernicious prescriptions.

3. This raises core issues for the G-20. The prestige of the new, premiere forum for handling international issues is at stake with efforts to push global rebalancing. One of the major obstacles to progress in Seoul last fall was Germany’s objection to proposals to have objective criteria for when countries’ imbalances are excessive. The G-20 was left with a long, tedious process of trying to come up with euphemisms for "excessive current account imbalance." Nor is the G-20 the only institution of global economic governance that is implicated. The IMF is a direct participant in the European bailouts, a fact which is coloring discussions over a new Managing Director.

4. This severely undercuts a more multilateral approach to foreign policy. The Obama administration has tried to distinguish itself from its predecessor by stressing the need to enlist more partners in cooperative endeavors (though, as Josh Rogin has reported, this has not always played out as advertised). The number of major potential partners in global undertakings is relatively limited. If Europe’s time, money, and focus are consumed by internal crises, then it will be less willing and able to join the United States in leading multilateral efforts elsewhere in the world.

Decades of European stability have been a wonderful boon. It is hard to see how that stability survives the continent’s current economic crisis. If Europe falters, the ramifications will not be limited to the world of finance.

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David BoscoDavid Bosco, a Foreign Policy contributing editor and assistant professor at American University's School of International Service. He is at work on a book about the International Criminal Court's first decade. | The Multilateralist |